Levitt: U.S. Regulatory Structure Failed

The U.S. financial regulatory system "failed to adapt to important, dynamic, and potentially lethal new financial instruments as the storm clouds gathered," Arthur Levitt wrote in a Wall Street Journal op-ed.

Levitt, SEC chairman from 1993 to 2001, now calls for the establishment of a new, self-financing government agency to supervise over-the-counter trading, exchanges, boards-of-trade, and municipal debt.

Second, he proposes a merger of the Securities and Exchange Commission (SEC) with the Commodity Futures Trading Commission (CFTC) which would "correct one of the most antiquated and dangerous flaws in the regulatory structure."

The CFTC has regulatory responsibility not only for commodities but also for certain financial products and derivatives, some of which have contributed to the financial disaster which has rattled markets worldwide.

"It is now time to end the artificial distinction of differing regulatory schemes for economically equivalent markets," Levitt writes.

The merging of the two agencies has been suggested previously but has met strong opposition.

"We've had studies like this (for combining the SEC and the CFTC) for the better part of 50 years, and nothing happens because there are a lot of vested interests in the status quo,'' Bill Isaac told Bloomberg News.

Isaac was chairman of the Federal Deposit Insurance Corp. between 1981 and 1985.

The U.S. financial regulatory system "failed to adapt to important, dynamic, and potentially lethal new financial instruments as the storm clouds gathered," Arthur Levitt wrote in a Wall Street Journal op-ed.Levitt, SEC chairman from 1993 to 2001, now calls for the...